Equity Funds Struggle in March but Remain Positive for the Quarter, Morningstar Canada Data Show

Apr 03, 2012, 07:00 ET from Morningstar Research Inc.

TORONTO, April 3, 2012 /PRNewswire/ - Despite lacklustre performance in March, most equity funds in Canada posted gains—many of them in the double digits—for the first quarter of 2012, according to preliminary performance numbers released today by Morningstar Canada. Among the 22 Morningstar Canada Fund Indices that measure the aggregate performance of equity fund categories, eight indices increased by more than 10%, while only one had a negative result for the quarter.

"This was the first quarter in a long time where markets didn't suffer from looming uncertainty over Europe, as the European Central Bank injected funds into regional banks in a hope to spur growth. However, some fears have begun to emerge that further financing will be necessary, leading to some speculation that investors can expect lower growth in the coming months," said Morningstar Fund Analyst Adam Fisch.

The top performer for the quarter was the Morningstar U.S. Equity Fund Index, which increased by 11.4%—its best result over any three-month period in more than a year. "U.S. equities lead the way during the first quarter following encouraging data on housing, consumer spending and consumer sentiment," Fisch said. The second-best performer, with an 11.3% increase, was the fund index that tracks the Financial Services Equity category, followed by emerging Markets Equity, Health Care Equity, and Global Small/Mid Cap Equity, which were up 11.1%, 10.9%, and 10.8%, respectively.

Most equity categories had solid returns in both January and February, but in March the results were negative for 10 of the fund indices. The best performers in March were the Health Care Equity and Financial Services Equity fund indices with increases of 4% each, followed by U.S. Equity with a 3.8% increase. All three of these fund indices were also in the top five performers for the quarter. Some of the fund indices that lost ground in March still posted strong results for the quarter, such as Greater China Equity which decreased by 5.4% last month but ended the quarter up 6.9%.

Most domestic-equity funds had negative results in March due largely to the natural resources sectors, which make up nearly half the Canadian market and suffered significant losses last month, but they still performed well over the quarter. The Morningstar Canadian Focused Small/Mid Cap Equity Fund Index led with an 8.6% increase over the past three months, while the indices that track the Canadian Small/Mid Cap Equity, Canadian Focused Equity, and Canadian Dividend & Income Equity categories were up 6.1%, 6.0%, and 4.6%, respectively. The Morningstar Canadian Equity Fund Index increased by 4.5% for the quarter, with most of the upswing coming in January.

The biggest losers in March were the Natural Resources Equity and Precious Metals Equity fund indices, which were down 8.4% and 10.6%, respectively. The former ended the quarter up a meagre 0.1%, while the latter was the only equity fund index to lose ground. "More stability in the overall markets meant more of an appetite for risk, which often means less desire for the perceived safe haven of precious metals," Fisch said. "In addition, the Indian government's decision to double import duties on gold and the subsequent strikes by protesting Indian jewellers translated to less demand from one of the world's largest gold importers."

For more on March fund performance, go to www.morningstar.ca.

Morningstar Canada's preliminary fund performance figures are based on change in funds' net asset values per share during the month, and do not necessarily include end-of-month income distributions. Final performance figures will be published on www.morningstar.ca next week.

About Morningstar

Morningstar Research Inc. is a Canadian subsidiary of Chicago-based Morningstar, Inc., a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individuals, financial advisors, and institutions. Morningstar provides data on approximately 375,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 8 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services and has more than US$180 billion in assets under advisement and management as of Dec. 31, 2011. The company has operations in 27 countries.

SOURCE Morningstar Research Inc.